NEW DELHI: Ashok Prasad, a 35-year-old grocery shop owner in a small town on the outskirts of Bhimtal in Uttarakhand, has been looking to upgrade his feature phone. He wants a smartphone to watch Hindi movies and songs and get local weather updates. For this, he’s willing to do two things: wait for such smartphones to get cheaper, and skip 3G and go straight for a 4G device.

Prasad represents the customer that little-known handset makers such as Jivi, Ziox and Swipe are looking to tap in rural and semi-urban India. They join bigger rivals like Samsung Electronics, Micromax Informatics and Lenovo in jumping onto the bandwagon, taking advantage of 4G network rollouts by telcos, declining device prices and rising aspirations. Experts say the entry of virtual network operators may also act as a catalyst in the adoption of 4G phones in rural areas.

These smaller brands, which sell mainly feature phones and low-end smartphones in rural areas and tier-3 towns, are increasingly looking to tap basic phone users – making up 60% of the mobile phone market – who wish to upgrade, say industry officials and analysts.

“In semi-urban and rural areas, there is a huge potential telecom user base that needs relevant and affordable content, connectivity and 4G devices,” Jaipal Singh, market analyst-client devices at IDC India, told ET. Low smartphone penetration, rising income and aspirations to be part of the digital age make semi-urban and rural regions the next growth frontier for device makers, he said.

This is all the more so as analysts expect prices of 4G smartphones to drop to Rs 3,000 by the year-end, and even less next year. Jivi, which launched its first handset in 2011, plans to launch 4G-enabled handsets early next year. “4G phones are majorly in demand and our target is also to reach out to a mass audience,” Jivi Mobiles chief executive officer Pankaj Anand said, adding that consumer preferences are changing.

Swipe Technologies founder and CEO Shripal Gandhi said that with 4G chipset prices coming down, the gap with 3G is shrinking rapidly.

“In another 6-12 months, the gap between 3G and 4G will diminish, making 4G devices a natural choice for consumers,” he said.

Shubhodip Pal, chief operating officer at YU Televentures, a subsidiary of Micromax that sells only smartphones, said some users will skip 3G altogether and move straight to the faster 4G network. “There is a clear trend of migration from feature phones to low-end smartphones in smaller cities and towns, making these markets the next growth engine for the smartphone industry,” said Swapnil Bhatnagar, research director at IDC India.

Telecom market leader Bharti Airtel, and No. 2 and 3 Vodafone India and Idea Cellular respectively are expanding their 4G networks rapidly while billionaire Mukesh Ambani-controlled Reliance Jio Infocomm is expected to start 4G services later this year. Prices of devices supporting 4G have declined to about Rs 4,000, with Samsung and Micromax leading the market.

Jivi’s Anand said both Jio and Airtel are targeting the mass market. “Jio have already initiated trial tests with dealers in semi-urban and rural areas of India and the rollouts will definitely increase soon,” he said.

Analysts said the smaller handset makers have to move up the value chain because the feature phone market is shrinking and margins are under pressure.

The penetration of 4G devices in tier-3 locations and rural markets will depend on the availability of affordable devices and services, localised content and relevant services, Swipe’s Tejpal said.

Ziox, a mobile phone brand with presence in tier-3 and tier-4 locations, is adopting a wait-and-watch policy, although a shift appears inevitable. “The consumer segment in the lower price strata would want to move into the higher Internet speed-capable devices. We will have to move into the 4G-LTE device space,” Ziox Mobiles managing director Vikas Jain said.

Demand for 2G phones has bottomed out and by 2017, shipments of devices using 4G LTE – a standard for high-speed mobile data services known as Long Term Evolution – are likely to touch 65 million from 33 million at the end of 2015, said Krishna Mukherjee, telecoms practice analyst with CyberMedia Research.

Low-cost mobile and tablet maker DataWind has changed its strategy to focus on semi-urban and rural areas with affordable devices and hopes to make a mark with 4G adoption.

“We expect a major drop in 4G device pricing and also in network costs, especially at a time when mobile virtual network operators start to roll out operations this year,” DataWind founder Suneet Singh Tuli said.

With the government allowing the entry of virtual network operators, smaller companies will be able to buy talk time and bandwidth from telcos in bulk and offer telephony services in rural areas without owning spectrum.

A new mobile device company, Hyve Mobility, founded by former Apple India executive Sharad Mehrotra, plans to debut with at least two 4G-enabled handsets later this month with a focus on the semiurban markets.

The 4G market in India is led by Samsung, while Micromax and other domestic brands such as Lava are also doing well in urban and semi-urban India. Reliance Retail’s Lyf-branded handsets have made a strong presence, rising to No. 2 in the segment in its first quarter since launch.

Micromax expects as much as 80% of its smartphone revenue to come from 4G-enabled devices by 2017 and expects the shift to 4G to be much faster than the move to 3G.

"Contribution of 4G mobile handsets in Lava’s total mobile handset sales is currently at 33% and it will increase to about 50% in 2017," said Gaurav Nigam, head of products at the Noida-based mobile handset company.

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